Enfeebled for long by mismanagement, underperformance and sleaze, Nigeria’s economy is exhibiting clear signs of impending distress. The sense of doom was accentuated at the weekend when the Nigerian Economic Summit Group and Nigerian Employers’ Consultative Association warned that the economy was tottering. Like multilateral organisations and other experts, the duo premised this on rising debt and repayment obligations, inflation, extensive insecurity, and the foreign exchange crisis, among others. Salvaging the situation is a daunting task considering the antecedents of the regime of the President, Major General Muhammadu Buhari (retd.).
But something must be done fast to save Africa’s largest economy. While regime officials persist in denial, the reality is that the positives are few, while the negative figures are soaring. Nigeria has been unable to meet its OPEC production quota of 1.83 million barrels per day. Throughout 2021, it recorded a shortfall of 300,000 bpd, traced mainly to oil theft. Officially, the figure is now 400,000 bpd in losses. For a country in dire financial straits, this creates serious liquidity problems.
A major oil producer without a functional domestic refinery, the Federal Government has budgeted N4.19 trillion for petrol subsidies in 2022. In the five months to May, it paid N1.27 trillion. For 2023, the regime has proposed N6.72 trillion for subsidies. Since February, petrol shortages have blighted the economy. Partial and possibly temporary relief has come only because the government looked the other way when marketers increased the pump price.
Manufacturers, airlines, and households are groaning as prices of diesel, kerosene, and aviation fuel hit the roof. Some companies are drastically scaling down operations. The Manufacturers CEO’s Confidence Index Survey of 400 CEOs in first quarter 2022 organised by the Manufacturers Association of Nigeria revealed a decline in confidence by 1.5 points to 53.9 points in Q1, down from 55.4 points in Q4 2021.
MAN blames the deceleration on “rising cost of production, illiquidity in the forex market, insecurity causing disruptions to supply chains and rising uncertainties from the tensions in Eastern Europe and how the war in Ukraine has affected us.”
With industries down, the jobless rate of 33.3 per cent portends grave economic implications, particularly among the youth. More job losses are expected. State governments project that they might soon stop paying salaries because of the deductions for petrol subsidies. It is a chaotic, opaque accounting system.
Inexplicably, the governors have refused to mount pressure on Buhari to auction the four state-owned loss-making refineries. Privatisation is the best global practice. In the single largest transaction in history in 2019, Saudi Arabia partially privatised Saudi Aramco, raising $30 billion. Aiming to raise $55 billion by 2030, the Saudis will privatise other state assets. In contrast, the Buhari regime holds on unwisely to commercial assets that could fetch it money and stop waste.
More dangerous is Buhari’s excessive craving for debt. From N39.1 trillion in Q4 2021, total debt stock rose to N41.6 trillion in Q1 2022, the Debt Management Office said. Between January and April, debt servicing gulped N1.94 trillion compared to retained income of N1.63 trillion. Unconvincingly, the regime blames its borrowings on the need to build infrastructure, but it fails to cut down the huge recurrent expenditure. Currently, over 90 per cent of revenue is spent on debt servicing, a recipe for disaster.
Consequently, the country’s public finance system is unsustainable. From 25.34 per cent in 2017, debt-to-GDP climbed to 27.69 per cent in 2018, 29.17 per cent in 2019, and 34.49 per cent in 2020.
Illogically, the Minister of Finance, Zainab Ahmed, persists in arguing that “Nigeria’s problem is not debt but one of revenue.” The regime stubbornly rejects adopting policies that can raise its revenue, including the effective collection of stamp duty, arresting the leakages in the Treasury Single Account, liberalisation and privatisation of commercial public assets, and drastic reduction in the cost of governance.
In the long term, the prospects are grim. The government projects debt servicing to hit N10.25 trillion by 2025, an increase of 186 per cent from the N3.69 trillion in 2022. Tax collection, including VAT, is very low: politicians and businesses routinely evade tax. Vice-President Yemi Osinbajo said tax-to-GDP is 8.0 per cent. Our peers do between 15 and 25 per cent.
The government ignores calls to repeal the Railways Act 1955 that inhibits private investment in rail transport. Instead, it is borrowing to build rail tracks, and pursuing a doomed state-sponsored national air carrier project.
To save the economy, Buhari should wean himself of statism. The oil refineries, the Transmission Company of Nigeria, airports and seaports, should all be privatised. The government should significantly reduce its stakes in the power distribution and generation companies to enable private capital to begin the arduous task of giving Nigeria reliable electricity.
Undoubtedly, the crash of the naira (down to N710 to $1 in early August) has fuelled unparalleled inflation now at 18.60 per cent. It has never been this bad. The economy has suffered two recessions under Buhari.
Averting disaster requires taking some hard decisions. The six executive orders facilitating the ease of doing business, especially at the seaports and airports, should be implemented. The government should cut costs and stop the borrowing binge. The Ajaokuta Steel Company, uncompleted since 1978, should be denationalised transparently to provide the industrial backbone for the economy.
The government’s increasing resort to ‘Ways and Means’ has unpleasant long-term implications. It should instead plug fiscal leakages, partner with the private sector on petroleum products refining and imports and accord priority to building world-class infrastructure.
Government should effectively collect its taxes. Tax offenders should be prosecuted as in other jurisdictions where government runs on taxes, not commodity sales.
Retooling the security system is essential; the regime should secure international assistance to defeat Islamic terrorism and banditry. It should stamp out oil theft, which costs the economy $1.9 billion monthly, according to the Nigerian National Petroleum Company Limited.
State governments are a major problem. Most governors depend on federal handouts, live like emperors and offer nothing in terms of formulating and executing self-reliant economic programmes. They should devise policies to leverage on their peculiar endowments and aim for fiscal self-reliance and running self-sustaining economic units.
